The procurement software market is forecast to grow from $2.1 billion in 2008 to more than $3.0 billion worldwide in 2012, a compound annual growth rate (CAGR) of 10.1%.With current market discontinuities, procurement technologies are well-positioned to assist companies in reducing spending. This report profiles and sizes the overall market along with sub-markets for sourcing, contract management, e-procurement, procurement business process hubs (networks) and plain old purchasing.A subscription or purchase is required to access this report.

Debbie – I finally had time to digest this report. It provides a great overview, and with the predictions for strong growth through 2012, I feel very excited to be involved in this software market. However, I want to add my perspective to your comments regarding SaaS vendors (page 11 of the report). The report states that “SaaS-only” vendors offer a “differentiated” solution, while companies that offer a hybrid solutions (SaaS or hosted or on premise using the same code base) are at a disadvantage. What is missing in this statement is context around which markets this applies to. In the mid-market e-procurement solution segment, this may be true. However, for large enterprises looking for suite solutions (spend, sourcing and contract management), our experience shows that many companies value options other than “SaaS-only.” In this market, SaaS-only vendors are at a disadvantage for two reasons. First, while many large enterprises want SaaS deployments, they also value flexibility to move to an on premise solution in the future. Second, they value integration with other solutions (e.g., contract management), which as you state is often deployed on premise or single-tenant hosted.

Regarding the differentiation of SaaS-only vendors mentioned, what company doesn’t want to purchase a “high value, low price, high level of customer service” offering? The problem is that the business model is extremely difficult to pull off at scale. The most “successful” vendor to apply this business model in this space was probably Procuri. They were laser-focused on execution, and I admire their efforts. However, what they learned from the experience is that the model doesn’t scale. Costs start to rise faster than revenues, and in the end, their investors came to the conclusion that there was no way to make money with this approach. This realization ultimately led to the demise of Procuri, if you consider selling your company for $100 million a demise. My question, Debbie, is how will other “SaaS-only” vendors in the space achieve a different outcome?

My final point: for many tech vendors, SaaS or “On demand” is like religion; it is as if that is the only criteria to be weighed in the decision process. However, it isn’t for everyone, and one should not downplay the value of offering alternatives. While an on premise/cd model sounds like an anachronism, the pay-once, in-house control offers value and security to IT organizations. The question is whether it is an either/or choice. That is, either SaaS or On Premise, and you must choose. What about a hybrid option? A single platform with either On Demand or On Premise deployment options and a clear migration strategy to allow customers to move seamlessly between the two offers value to companies and takes the “religion” out of the sales cycle.

The hybrid approach allows tech vendors to meet the diverse needs of customers while adjusting to their changing requirements and budget over time. While this may not seem revolutionary, companies needs do change. As adoption picks up and the value of a technology solution rises, it can become mission critical to a company. Integration and control become more important to driving adoption and decision making.

Thanks for the comments Kevin. Your very good question deserves more than a sentence in response – so see my post, “SaaS: A Different Approach to the Business Of Software,” dated December 15 – for my reply.

the downside with the software+services approach is a dilution of competence doing either. providing SaaS solutions is a very specialized competence area with very specialized demands – the service requirements, disaster management, uptime requirements. the scaling ability of SaaS is a grey area right now admittedly, but enterprises have started to gravitate towards SaaS, and one hears of large implementations a lot nowadays. this betrays an increasing confidence in SaaS in the part of enterprises.

About

Comments or opinions expressed on this blog are those of the individual contributors only, and do not necessarily represent the views of Gartner, Inc. or its management. Readers may copy and redistribute blog postings on other blogs, or otherwise for private, non-commercial or journalistic purposes, with attribution to Gartner. This content may not be used for any other purposes in any other formats or media. The content on this blog is provided on an "as-is" basis. Gartner shall not be liable for any damages whatsoever arising out of the content or use of this blog.